Canadian businesses still searching for silver lining in cloud: IDC-Telus report

Cloud computing: Canadian businesses still searching for silver lining

Canadian businesses and IT leaders are still looking for the silver lining in cloud computing.

While 73% of cloud-reliant businesses reported improved ability in their IT strategy as a direct result of cloud computing, organizations are continuing to scratch their heads about the benefits of cloud computing, according to a recent study that suggests nearly two-thirds (63%) of non-public cloud users simply don’t know enough about the cloud.

The joint IDC Canada and Telus Corp. Enterprise Cloud Study released Tuesday showed an improvement from the previous year’s survey, in which 71% of IT managers dismissed alternative IT delivery models.

Related

However, respondents seemed to indicate a general lack of knowledge around nebulous terms such as “cloud,” which encompasses Software as a Service (SaaS), Infrastructure as a Service (IaaS), Platform as a Service (PaaS), shared public cloud, private cloud and even hybrid cloud.

“It’s just plain ignorance,” report author Mark Schrutt said. “Users have come back (to IDC) to say between 40 to 45% of the time, they believe there are regulations that inhibit their ability to use the cloud — strictly Infrastructure as a Service. They have concerns that are unfounded, or not based on fact.”

Cloud computing allows businesses to store, access and share data by outsourcing the information to a remote server. Software as a Service (SaaS), in which vendors grant access to already built programs (Gmail, for example), accounts for the bulk of cloud adoption focus among Canadian businesses. IaaS enables businesses to gain access to networked computer hardware, with these machines existing as virtual resources for third-party infrastructure.

The entire IT services market in Canada contributed $20-billion to Canada’s GDP last year, and IDC estimates that the figure will grow to $22.5-billion in 2014. That sum puts the report’s expected figure of cloud services generating $1-billion next year into sharp perspective: Cloud technology does not even account for 5% of IT spending.

Small and medium-sized businesses (SMBs) have high public cloud adoption rates over larger enterprises, particularly those in the financial services, government, and health care sectors, inhibited by their concerns about data governance, security and privacy, and negligence on part of cloud providers.

“SMBs don’t have too many choices. They don’t have large enough IT staff. They may not be embedded in older technology so they can make the switch easier,” said Mr. Schrutt, director of services and enterprise applications at research firm IDC Canada.

While the American federal government has had a well-defined cloud computing roadmap for several years, Ottawa is still developing a Canadian strategy.

David Brassor, the cloud lead of Deloitte Consulting in Canada, said companies should stop focusing on the cost reduction benefits of adopting cloud sourcing, which in some cases may not materialize in the early stages of cloud adoption. Instead, companies should factor in the leaps in productivity improvement and business agility as significant advantages.

“It could take eight to 12 weeks to get a server installed and configured. With some of the cloud solutions, it could take you eight to 12 minutes,” said Mr. Brassor.

The IDC-Telus report found that 66% of Canadian cloud users believe they outperform their peers in revenue growth, and 64% find themselves at a competitive advantage in terms of profitability.

Chris Weitz, Deloitte’s technology expert for Cloud Computing, said he believes Canada’s lagging adoption rate compared to the U.S. comes down to supply and demand — cloud service suppliers are investing in the world’s largest market first.

“The coverage (in the U.S.) is better compared to other markets, with more competition among suppliers, more aggressive pricing, and a more fluid market, therefore, the choices are broader for customers, said Mr. Weitz.

“Enterprises particularly are faced with a lot of good market options, so the prices are going to be more competitive with more attractive offers in the U.S. simply based on the market maturity and the size of the market.”

Having a “cloud-first mindset” has become a business convention in the United States, Mr. Weitz said.

“People are quite comfortable with it in the U.S. People do not look at it as an exotic or unusual approach,” he said, citing Amazon, Microsoft and Google as traditional third-party suppliers who have set the standard in the U.S.

And concerns surrounding Canadian businesses reliant on U.S.-based cloud computing providers being vulnerable to American spying under the provisions of the Patriot Act are overemphasized, said Mr. Brassor.

“The issues around the Patriot Act are overblown,” Mr. Brassor said.

“Most global companies are sophisticated enough to segregate their data,” said Mr. Weitz. “If you are designing a system for cross-border use, you’re going to typically factor that into the design of your system. You’ll just have to design around anything that could be subject to different regulatory or jurisdictional regimes.”

As individual countries don’t have the luxury of defining their own destiny, these misplaced concerns could threaten Canada’s economic competitiveness in the long run, Mr. Weitz warned.

“As global markets become more fluid, speed and agility matter. Global corporations are going to make decisions based on timed market and flexibility, and based on a common understanding of what is appropriate on security and governance. If markets are deemed too slow or too rigid, that will be an issue.”

Mr. Brassor said there is a movement towards more public cloud infrastructure offering country-specific solutions that organizations can leverage. Vendors such as 6fusion offer options for aggregating public cloud infrastructure that reside solely within Canada.

Adi Kabazo, manager of cloud and hosted services at Telus, cautioned that Canadian companies shouldn’t look to keep up with the Joneses in the U.S., but instead vie with local competitors.

With its combination of cold winters and cheap power (technology called “free cooling” helps mitigate steep costs of cooling server infrastructure) Canada has an opportunity to host more energy-intensive server farms, as Finland and Sweden have hosted Facebook and Google data centres, Mr. Weitz said.

Leading cloud providers such as Google or Amazon are reticent to set up shop in Canada as the market demand and business cases simply aren’t strong enough here, instead gravitating to countries where the opportunities are more varied and rich, such as Asia, Mr. Brassor said. Corporate tax breaks in the U.S. are more attractive than those in Canada, which outweigh the “free cooling” perks. But tax breaks alone won’t pull in big players. Telus Corp. didn’t receive any funding or subsidies from the Quebec government to open a $65-million data centre in Rimouski, Que. to focus on cloud computing solutions.

“I’ve had discussions with Google around setting up a cloud-specific solution for their email service specific to Canada. And their response was, ‘Sorry, you don’t have enough people willing to sign up right now to make it worth our while’,” Mr. Brassor said.

Schrutt said companies could outsource to Canadian-based vendors and save between 15 and 25%. Labour arbitrage can add another 25% to 35% savings for on-shoring operations. But if cost savings is the primary focus, a business’s hand is almost always forced to go offshore, he said. While Canadian companies would prefer their data stay within national borders, IDC surveys signal that preference is overshadowed by cost reduction priorities.

U.S. servers are delivering more than 50% of IaaS to Canadian companies, but Schrutt said IDC expects the figure will decrease as more homegrown vendors prop up.

Mark Kummer, vice-president at Cisco Canada, said Canada’s chronically low rankings in league tables when it comes to innovation and productivity could be buffered by more aggressive cloud adoption.

Mr. Kummer said Canada is falling behind the United Kingdom and Scandinavian countries, where business are adopting these technologies at a faster rate in more competitive environments.

“One of our strongest performing markets — in terms of Cisco technologies being consumed through the cloud — is Australia,” Mr. Kummer told The National Post in a WebEx interview. He pointed to Australian telecommunications giant Telstra moving aggressively with its $1-billion cloud computing investment without fear of jeopardizing revenue streams. The carrier reported that robust cloud computing demand helped push revenue up by 10.6% to $636-million in the latter half of 2012.

Telcos like Bell Canada and Telus stepped into the cloud computing arena last year by launching their respective public and private IaaS projects — signs that Canada is slowly but surely embracing cloud solutions, Kummer said.

“Traditional delivery — traditional hosting and outsourcing — will start declining over the next 24 to 36 months, and cloud will be the growth engine by 2015-2016,” Schrutt said.

Almost Done!

Postmedia wants to improve your reading experience as well as share the best deals and promotions from our advertisers with you. The information below will be used to optimize the content and make ads across the network more relevant to you. You can always change the information you share with us by editing your profile.

By clicking "Create Account", I hearby grant permission to Postmedia to use my account information to create my account.

I also accept and agree to be bound by Postmedia's Terms and Conditions with respect to my use of the Site and I have read and understand Postmedia's Privacy Statement. I consent to the collection, use, maintenance, and disclosure of my information in accordance with the Postmedia's Privacy Policy.

Postmedia wants to improve your reading experience as well as share the best deals and promotions from our advertisers with you. The information below will be used to optimize the content and make ads across the network more relevant to you. You can always change the information you share with us by editing your profile.

By clicking "Create Account", I hearby grant permission to Postmedia to use my account information to create my account.

I also accept and agree to be bound by Postmedia's Terms and Conditions with respect to my use of the Site and I have read and understand Postmedia's Privacy Statement. I consent to the collection, use, maintenance, and disclosure of my information in accordance with the Postmedia's Privacy Policy.